hp sales presentation

Team 20

Blair Belliveau

McLean Gordon

Callen Larus

Anand Swamysetti

Yi-Lin Su

Demand for Personal Computers

Agenda

• Computer Industry Trend Analysis

• Hewlett Packard Analysis

• Proposed Variables/Research Process

• Regression Equation

• Forecast

• Recommendations

• Q & A

Computer Industry

Dell: Build-to-Order

Apple: Innovation

Growth of tablets

PC Industry = Car Industry

2013 Computer and Internet

Use for U.S. Households

83.8%

78.5%

63.6%

78.4% 73.4%

0%

20%

40%

60%

80%

100%

Total withComputer

WithDesktop/Laptop

With HandheldComputer

With InternetAccess

With High SpeedInternet

% Households

Source: Census

U.S. PC Sales

for Hewlett Packard

0%

5%

10%

15%

20%

25%

30%

35%

0

1000

2000

3000

4000

5000

6000

7000

HP

Sale

s %

of T

ota

l Ma

rket

Sale

s in U

nits

HP/Compaq Sales HP Sales % Total MarketThousands

Initial Research

Apple Net Sales Revenue

Consumer Personal Savings

CPI: Personal Computers

Consumer Sentiment Index

Multiple Job Holders

Producer Price Index

Real Personal Consumption

Seasonality

Total US School Enrollment

US Internet Advertising Expenditure

Variables Selected

CPI: Personal Computers

Total US School Enrollment

4th Quarter/Seasonality

Regression Model

HP Quantity =

-30604 – 0.261 PC Price

+ 0.4477 Total School

Enrollment + 434 Quarter_4

Explains 85.11% of Demand

Hewlett Packard Sales:

Real versus Predicted

0

1000

2000

3000

4000

5000

6000

7000

HP

/Com

paq S

ale

s in U

nits

HP Predicted Sales (in units) HP Real Sales (in units)Thousands

Regression: Price

HP Quantity = -30604 – 0.261 PC Price + 0.4477

Total School Enrollment + 434 Quarter_4

Regression:

Student Enrollment



Regression: 4th Quarter



Hewlett Packard Sales:

Real versus Predicted

0

1000

2000

3000

4000

5000

6000

7000

HP

/Com

paq S

ale

s in U

nits

HP Predicted Sales (in units) HP Real Sales (in units)Thousands

Dell (Build to Order) September 11th

Windows 7 PC Price Drops

Key Findings

Computers are a necessary school supply

Holiday season is the biggest sales driver

Customization is the industry norm

Price will always be an important factor

HP PC Demand Prediction

3000

3500

4000

4500

5000

5500

De

ma

nd

Pre

dic

tio

n (

in u

nit

s)

Thousands

Predictions:

US Student Enrollment

68000

70000

72000

74000

76000

78000

80000

To

tal

US

Stu

den

t E

nro

llm

en

t

Source: Census

Thousands

Predictions: Price

$-

$500

$1,000

$1,500

$2,000

$2,500

Pri

ce o

f P

C b

ased

on

CP

I

Source: Gartner Base Period: DECEMBER 2007=100

Recommendations

Increase production in Q2 in

preparation for Q3 and Q4

Continue marketing efforts for

Pavilionx2, Envyx2 and Splitx2

Focus R & D efforts on launching a

product less than $300

Increase marketing efforts for HP

Academy

Questions?

HP PC Sales vs Dell

0

1000

2000

3000

4000

5000

6000

7000

PC

Sale

s i

n U

nit

s

Dell Sales HP Sales


-80

-60

-40

-20

0

20

40

60

80

100


Co

mp

ou

nd

ed A

nn

ua

l R

ate

of C

ha

ng

e

Source: FRED

HP Demand Adjusted

0

1000

2000

3000

4000

5000

6000

7000

8000

19

97 1 3

19

98

1 3

19

99

1 3

20

00

1 3

20

01

1 3

20

02

1 3

20

03

1 3

20

04

1 3

20

05

1 3

20

06

1 3

20

07

1 3

20

08

1 3

20

09

1 3

20

10

1 3

20

11

1 3

20

12

1 3

20

13

1 3

20

14

1 3

20

15

1 3

HP

Dem

an

d (

in u

nit

s)

HP sale(real) HP Sales(equation)

US Internet Advertising Expenditure

0

2000

4000

6000

8000

10000

12000

14000

US

In

tern

et

Ad

do

llars

Ad Dollars SpentMillions

Apple Net Sales Growth

0

10000

20000

30000

40000

50000

60000

70000

Net

Sale

s (

in m

illi

on

s)

Apple Net Sales (in millions)

Source: Apple Quarterly Reports

Hewlett Packard Split

Source: Hewlett Packard Announcement Investor Presentation

Competitors

H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 1

Hewlett-Packard Demand Driver Analysis:

Forecast and Course of Action

Blair Belliveau

McLean Gordon

Callen Larus

Yi-Lin Su

Anand Swamysetti

Team 20

Economic Analysis

Section 2


Personal Computer Industry Trends:

Since 1997, the personal computer industry has experienced defined pivotal moments.

Beginning in 2000, consumer sentiment shifted as the US market became saturated. Growth

came to a halt and the PC industry had to begin to adapt. As a result, the notebook laptop gained

footing and growth started anew. Dell won the consumer’s desires with Build-to-Order leading

to the industry rebounding (Carlson, 2006). Now the process has halted and innovation has

again become a necessity. Apple has dominated the playing field with its answer to the

consumer’s whims. Apple’s iPad has challenged the industry to focus on highly efficient, mobile

devices (Bajarin T. , Can the PC Industry Resurrect itself?, 2013).

Surveys show that people utilize tablets for 80% of their computational tasks leaving PCs

with the remaining 20% (Bajarin T. , Can the PC Industry Resurrect itself?, 2013). That 20% is

completed with the most baseline models leaving the most expensive PCs on the shelves to

collect dust. To further acknowledge the trend, the past ten years were dominated by the PCs in

the $799-$999 range with “high-end processors, extended graphics capabilities, and more on-

board memory and hard drive space” superior to cheaper models; however, it is those cheaper

models that have become the most preferred (Bajarin T. , Can the PC Industry Resurrect itself?,

2013). The last decade’s mid-priced PC has become marginalized as PCs simply need to meet

simple needs; furthermore, PCs have become like the car industry, nearly every household has

one and tries to make it last (Bajarin B. , 2013). Consumers feel no need to upgrade their PCs

which denotes the decreased value in the PC market. Demand still exists for upscale PCs in the

$1099-$1499 range but only in IT, business, and SMB markets which pale in comparison to the

consumer sector (Bajarin T. , Can the PC Industry Resurrect itself?, 2013).

The dawn of ultramobiles and hybrids illuminate the PC industry’s future. Multirole PCs

are the potential for the industry to regain traction and value in the minds of the consumer sector.

Goals should be set upon a hybrid PC of eight inches and smaller in dimension that meets the

demand of the tablet and has the potential for a traditional computer with the necessary

accessories (Bajarin T. , Windows Blue and the Rise of Ultramobiles, 2013). As for HP, Inc., the

company needs to continue developing hybrid PCs with touch-screen and high computational

capabilities. Price

has become the

leading combatant

contributing to the

PC industry’s

appeal. As evident

in figure 1, the

substantial

percentage of

households with

handheld computers

is a market that

needs to be tapped

(United States

Census Bureau, Figure 1: Bar graph showing Percentage of Product ownership in US Households

(United States Census Bureau, 2014)


2014). Quarter 2 reports, however, show that the tablet market may now be saturated (Pettey &

van der Meulen, 2014). With the potential of a hybrid PC, HP should be able to evolve to

answer the new consumer’s desires.

Key Factors Driving Demand in the Industry:

Team 20 Consulting Services have revealed eight key factors that drive overall demand

for PCs:

CPI: Personal Computers Total School Enrollment US Internet Advertising Expenditure

Real Personal Consumption Multiple Job Holding Persons Consumer Personal Savings

Producer Price Index Seasonality

Evident in the industry trends, the consumer price index of PCs is an indispensable

variable in determining the quantity demanded. The index references the actual value of a 1997

PC which shows a rapid decrease until 2003. Since 2003, the CPI becomes asymptotic

indicating that the value of the PC has stagnated. We anticipate a negative relationship in our

demand analysis.

Total school enrollment should produce a positive contributor to the predicted quantity

demanded. We believed that school enrollment would have a significant effect on the sales of

PCs as most students ultimately purchase the products. According to our conducted survey,

people between the ages of 20-30 years reported school as the most important reason to buy a

laptop.

Under the current worldwide culture, internet is in everyone’s life and we can barely

function without it; therefore, we considered the effect of internet advertising expenditure as a

reflection on the predicted quantity demanded. We expected a positive relationship as

expenditure increased where there should be an increase in product demand.

To further our analysis, we considered recorded trends in real personal consumption. We

anticipated the macro variable would provide a positive relationship to demand. The variable

reflects personal spending per consumer adjusted to inflation further illustrating overall

consumer spending behavior and the overall state of the economy. The higher the real personal

consumption, we would expect higher sales of PCs (Oak, 2012).

Next, we considered multiple job holding persons. We rationalized that a person with

multiple jobs necessitated a PC or two in order to maintain organization. The need for

organization would contribute to more product demand and reflect a positive relationship in our

analysis.

We then considered consumer personal savings. In contrast to the majority of the

variables, we anticipated a negative relationship in demand. This variable reflects the

consumer’s tendency to hold on to old models as they continue to meet their needs. As this

variable increases, it shows consumers are not spending on potential “want” products.

Producer price index reflects the average change over time in selling prices received by

producers for their output. Higher PPI would illustrate a healthier economy flushed with

consumer spending (Bureau of Labor Statistics, 2014). We anticipated a positive impact on our

analysis.


Lastly, we considered the seasonality. We anticipated certain results depending upon the

time of the year. We rationalized Q3 and Q4 would be important indicators in our analysis as

students ready for the new school year and consumers tend to purchase more for the holidays

respectively.

Quarterly Data and Sources:

I. Consumer Price Index for Personal Computers:

Federal Reserve Bank of St. Louis. (2014). Consumer Price Index for All Urban Consumers:

Personal computers and peripheral equipment. Retrieved from FRED:

http://research.stlouisfed.org/fred2/series/CUUR0000SEEE01

II. Total School Enrollment:

United States Census Bureau. (2014). School Enrollment. Retrieved from United States Census

Bureau: www.census.gov/hhes/school/index.html

III. US Internet Advertising Expenditure:

Interactive Advertising Bureau. (2014). IAB Internet Advertising Revenue Report Conducted by

PricewaterhouseCoopers (PWC). Retrieved from Interactive Adveristing Bureau:

http://www.iab.net/research/industry_data_and_landscape/adrevenuereport

IV. Real Personal Consumption:

Federal Reserve Bank of St. Louis. (2014). Personal Consumption Expenditures. Retrieved from

FRED: http://research.stlouisfed.org/fred2/series/PCEC

V. Multiple Job Holding Persons:

Bureau of Labor Statisitics. (2014). Multiple Job Holders. Retrieved from Bureau of Labor

Statistics: http://data.bls.gov/pdq/SurveyOutputServlet

VI. Consumer Personal Savings:

Federal Reserve Bank of St. Louis. (2014). Personal Savings. Retrieved from FRED:

http://research.stlouisfed.org/fred2/series/PSAVE

VII. Producer Price Index:

Federal Reserve Bank of St. Louis. (2014). Producer Prices Index: Total Goods for the United

States. Retrieved from FRED:

http://research.stlouisfed.org/fred2/series/PITGCG01USQ661N

Multiple Variable Regression:

HP Quantity = -30604 – 0.261 PC Price + 0.4477 Total School Enrollment + 434 Quarter_4

The regression equation stated above best reflects the demand for HP PCs. Based on our

survey and our research on overall industry trends, the consumer desire to purchase PCs is

contingent upon the set price, amount of school enrollment, and the regular consumer attitude to

spend during the holiday season.

While consumers may hold on to their PCs and resist the pressure to upgrade, newly

enrolled students will need new PCs to meet school work load demands. By the winter season,


individuals who want to spend may seek out a new innovative way to meet their computational

needs. In both situations, however, consumers will still focus on price ranges less than the base

PC priced at $799-$999; furthermore, if a product answers the needs of a PC and the

convenience and portability of a tablet, HP may be able to win over consumers (Bajarin T. , Can

the PC Industry Resurrect itself?, 2013). In light of these results, an innovative PC-tablet hybrid

should sweep the consumer’s minds. The regression explains 85.11% of consumer demand and

highlights the seasonal timetable to introduce the “next best thing.”

The release of the Split x 2 hybrid should meet the consumer’s needs. Starting at $600, it

should facilitate the price conscious consumer while meeting 100% of the consumer’s needs

(Riofrio, 2014). Our model illustrates the times the new innovative models should be released

and which market to focus on. New students will start looking for practical alternatives to meet

convenience and work station needs.

Our key findings incorporate industry trends and our regression analysis. We confirm

that computers are a necessary school supply, the holiday season is the biggest sales driver,

customization has become an industry norm for Windows based PCs, and price will always be a

competitive factor for HP to address.

Forecasts:

Our projections for the Total School Enrollment variable are taken from the National

Center for Education Statistics’ “Projections of Education Statistics to 2022,” published in

February, 2014. This report has been published under the auspices of the U.S. Department of

Education since 1964. The report’s forecasting models are in turn based on assumptions about

population and economic growth, taken from the 2010 Census and from IHS Global Insight.

As seen in Figure 2, the student enrollment statistic’s predictive power comes from its

incorporation of a broad set of macro variables, including forecasts of fertility rate, immigration,

disposable income per capita and unemployment. As William J. Hussar, economist at the NCES,

explained to us, the disposable income variable is expected to have a positive sign, as increased

income increases people’s ability to pay for postsecondary education (Hussar, 2014). The

unemployment variable is expected to have a negative sign, as increased unemployment lowers

the opportunity costs of attending school.

In addition to being a comprehensive macro-indicator, Total School enrollment accounts

for one important driver of PC sales, which is the education sector. As HP states in its Annual

Reports, the education sector is a significant market for its products. As enrollment and school

spending rise, there is increased demand for PCs, which are learning tools for new students and

teachers.

Our 4th

quarter variable is just an indicator, used to account for the fact that HP frequently

shows increased unit shipments during the 4th

quarter. The 4th

quarter is regularly a time of

increased sales for vendors of consumer goods, corresponding with the holiday season in the

United States.

Forecasts for price (see figure 3) (National Center for Education Statistics, 2014)come

from applying the Trend and Season Forecasting Template, found in Complete Business

Statistics, by Aczel Sounderpandian. The price figures show price over time, adjusted for

functionality, with the functionality index year set at 1997. In other words, the drop in price

represents the loss of value of 1997 PC technology. This loss of value is a function of the


dramatic improvement of consumer computers. What once was a rare luxury is now

commonplace, as reflected in falling prices. As prices stabilize, approaching the asymptote,

present advances in PC technology reach their limit. Much as the car of today is hardly

differentiated from the car of 2000, the PC of today does not differ significantly from the PC of a

few years ago, at least from the consumer’s standpoint.

Application of Forecasts and Recommendations for Future Business Strategy:

The most obvious recommendation is that inventories should be highest in advance of the

3rd

and 4th

quarters, as this is the period when sales ramp up for the start of the school year and

for the holiday season. Our equation indicates that an additional 434,000 PC units ship during the

4th

quarter, and production should be scheduled accordingly.

The main conclusion of our analysis boils down to the fact that overall demand for the

traditional PC has flattened. Since Q1 2008, the rate of growth from a year prior has been

negative more than half the time. Of the thirty-nine quarters leading up to 2008, only six had

seen a negative rate of growth from a year prior. Additionally, annual growth rate by quarter

since 2008 has been less than one percent. That same rate had averaged at nearly fifteen percent

for the entire decade prior.

0

1000

2000

3000

4000

5000

6000

7000

71000 72000 73000 74000 75000 76000 77000 78000 79000 80000

HP

PC

Sh

ipm

ents

U.S

.

Total School Enrollment

HP PC Shipments U.S. vs Total School Enrollment

0

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1000

1500

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2500

19

97

1 4 3 2

20

00

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03

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1 4 3 2

20

15

1 4

Pri

ce o

f P

C b

ase

d o

n C

PI

Price with Forecast

Figure 3: Graph illustrates the CPI for Personal Computers with forecast

Figure 2: Graph illustrates the relationship between PC Shipments and Total School Enrollment


Our analysis reflects our realistic outlook for future PC sales. Improving macro

conditions, entailed in our school enrollment variable, do presage a return to mildly increasing

demand. That said, any prediction of a return to the kind of growth commonly seen pre-2008 is

erroneous.

In order to avoid repeating the mistakes of the U.S. automobile industry, HP needs to

recognize that the attainment of increased market share and unit sales in the consumer PC

business would be a Pyrrhic victory. While there will continue to be some demand for new PCs,

which remain necessary tools for the student, the emphasis for the PC buyer will be on reliability

and durability. This is a consequence of the decline in PC innovation and improvement, as

indicated by the flattening of the drop in technology-indexed price. Accordingly, our

recommendation is that HP continue to focus on developing their new product line. At the same

time, HP should work on cost-cutting and distribution optimization, in order to remain

competitive, in this dawn of ultra-mobile and hybrid PC’s.


Regression Analysis: HP versus PC $ price, Total School Enrollment total, Quarter_4

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 3 93110539 31036846 125.74 0.000

PC $ price 1 492226 492226 1.99 0.163

Total School Enrollment total 1 27545675 27545675 111.60 0.000

Quarter_4 1 2407272 2407272 9.75 0.003

Error 66 16290422 246825

Total 69 109400960

Model Summary

S R-sq R-sq(adj) R-sq(pred)

496.814 85.11% 84.43% 83.28%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant -30604 3266 -9.37 0.000

PC $ price -0.261 0.185 -1.41 0.163 2.68

Total School Enrollment total 0.4477 0.0424 10.56 0.000 2.68

Quarter_4 434 139 3.12 0.003 1.01

Regression Equation

HP Quantity = -30604 - 0.261 PC $ price + 0.4477 Total School Enrollment

+ 434 Quater_4

Fits and Diagnostics for Unusual Observations

Obs HP Fit Resid Std Resid

1 892 1108 -216 -0.48 X

2 1047 1075 -28 -0.06 X

4 1644 1592 52 0.12 X

20 1385 2442 -1057 -2.23 R

52 5954 4398 1556 3.25 R

60 4138 5189 -1051 -2.25 R

R Large residual X Unusual X


800

1300

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2300

2800

3300

3800

4300

4800

5300

58001

99

7 1 4 3 2

20

00

1 4 3 2

20

03

1 4 3 2

20

06

1 4 3 2

20

09

1 4 3 2

20

12

1 4 3 2

20

15

1 4

PC

Qu

anti

ty in

Un

its

HP Sales vs Predicted Sales with Forecast HP sale(real) HP Sales(equation) Linear (HP sale(real)) Linear (HP Sales(equation))


References Bajarin, B. (2013, April 15). The iPad-Sized Nail in the PC's Coffin. Retrieved from Time:

techland.time.com/2013/04/15/the-ipad-sized-nail-in-the-pcs-coffin/

Bajarin, T. (2013, April 22). Can the PC Industry Resurrect itself? Retrieved from Time:

techland.time.com/2013/04/22/can-the-pc-industry-resurrect-itself/

Bajarin, T. (2013, April 8). Windows Blue and the Rise of Ultramobiles. Retrieved from Time:

techland.time.com/2013/04/08/windows-blue-and-the-rise-of-ultramobiles/

Bureau of Labor Statistics. (2014). Producer Price Indexes. Retrieved from Bureau of Labor Statistics:

http://www.bls.gov/ppi

Carlson, P. E. (2006, December). Personal Computer Industry Trends. Retrieved from

www.regionalgrowth.com/pubs/industry-studies/Personal_Computer_Industry_Trends.pdf

Hussar, W. J. (2014, Dec 7). (D. M. Gordon, Interviewer)

National Center for Education Statistics. (2014, February). Projections of Education Statistics to 2022.

Retrieved from National Center for Education Statistics:

http://nces.ed.gov/pubs2014/2014051.pdf

Oak, R. (2012, May). Real Personal Consumption Increased 0.1% for May 2012. Retrieved from

Economicpopulist.org: http://www.economicpopulist.org/content/real-personal-consumption-

increased-01-may-2012

Pettey, C., & van der Meulen, R. (2014, July 9). After Two Years of Decline, Worldwide PC Shipments

Experienced Flat Growth in Second Quarter of 2014, According to Gartner. Retrieved from

Gartner: http://www.gartner.com/newsroom/id/2793921

Riofrio, M. (2014, June 1). A new crop of HP laptops flip or spin, and run Windows, Chrome, or Android.

Retrieved from PC World: http://www.pcworld.com/article/2304857/hp-lets-loose-with-

laptops-that-rotate-or-split-and-run-windows-chrome-or-android.html

United States Census Bureau. (2014). Computer and Internet Use. Retrieved from United States Census

Bureau: www.census.gov/hhes/computer/

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